Swiss Banker Fails to Report Foreign Accounts

Earlier this week, Mill Valley, California resident Pius Kampfen pleaded guilty to an indictment charging him with willful failure to file the required reports of foreign bank accounts, or FBAR, for a Swiss bank account he controlled. Unfortunately for Kampfen, he is now facing years in prison and over $1 million in fines.

Pius Kampfen Fined Over $1M for Failure to File FBAR

According to the plea agreement, Kampfen was employed as an international banker for close to four decades prior to retiring in 2001. As an international banker, Kampfer’s role was to advise Julius Baer clients interested in international diversification regarding the bank’s investment management services.

Beginning in 2000, just a year before his retirement, Kampfen was the beneficial owner of multiple Swiss bank accounts held in the name Albia Investments. Between 2000 and June of 2012, Kampfen maintained accounts in the name of Albia Investments at Bank Vontobel, Pictet & Cie, UBS AG, Baumann & Cie, and ABN-AMRO. But from 2007 through 2009, Kampfen failed to report any of the Albia accounts on his income tax returns. During the same time period, he also failed to file FBARs for the associated accounts — despite the fact that he knew he was required to do so.

As part of his plea agreement, Kampfen agreed to pay an FBAR penalty of $1,465,393 prior to being sentenced. Sentencing has been scheduled for October 4, 2013, with Kampfen facing a maximum penalty of five years in prison (and yet another fine of up to $250,000).

Why the OVDP is the Best Option for Taxpayers with Undisclosed Foreign Accounts

Keep in mind that the IRS is the most powerful collection agency in the world. Take advantage of the OVDP while it is available, even if it doesn’t seem like the perfect solution. Why? When you’re faced with two tough choices — using the Offshore Voluntary Disclosure Program, or simply rolling the dice — OVDP comes out ahead.

Let’s you’re participating in the 2014 OVDP. Assume you agree to pay an FBAR penalty of 27.5% on a bank account you have in Switzerland that is worth $4 million. After paying a $1.1 million Offshore Penalty, at a 5% return it will take fewer than seven years for you to get back to $4 million. (Plus, no more IRS FBAR worries.)

If that doesn’t sound reasonable, you could always gamble and ignore the opportunity to participate in the OVDP. After all, you think, it’s going to take the IRS a long time to go through all the people it suspects of having undisclosed accounts. The chances of you being audited for FBARs this year, or next, or even the year after, are realistically very low.

But you can’t run from the IRS forever. Imagine 2017 rolls around, and you are finally selected for an FBAR audit. Even if you’re fortunate enough to be hit with “only” one 50% FBAR penalty, or $2 million, that means you’re down by half. So how long will it take you to get back to $4 million? Over 14 years — more than twice as long as it would have. And remember, that’s only if you’re lucky.

Who Needs to File an FBAR?

Simply put, U.S. taxpayers with foreign accounts exceeding $10,000 must file an FBAR. The FBAR is mandatory because foreign banks may not be subject to the same reporting requirements as U.S. banks. Essentially, FBAR helps the federal government identify people who might be using foreign accounts to evade American tax laws.

Unless an exception applies, generally speaking all U.S. persons must file an FBAR if the following conditions are met:

The person had either signature authority over or financial interest in one or more financial accounts outside the U.S.

The total value of all foreign financial accounts surpassed $10,000 at some point during the calendar year being reported.

Furthermore, taxpayers with specified foreign financial assets exceeding certain thresholds are required to report those assets to the IRS by using Form 8938 (Statement of Specified Foreign Financial Assets). Form 8938 is due when the taxpayer’s income tax return is filed, including extensions. Note that this updated Form 8938 filing requirement does not replace the taxpayer’s obligation to file an FBAR.

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